I really don't understand the oil industry

When I was at school, between 1988 and 2002, they used to teach us that the world had about 30 years of oil left. It didn’t matter that the geography textbooks were ten or fifteen years old, because the thirty year estimate stayed pretty constant from one decade to the next. As I understand it, these estimates were based on how long it would take to use up currently proven reserves if current trends in usage stayed constant. Since more reserves got proven all the time, the time limit didn’t necessarily go down as oil got used up. The cynic in me suspects they deliberately went for a methodology that produced an alarmingly low figure because they wanted us to become enthusiastic about renewable energy. Perhaps it worked, although when you think about it the low figure is as much a reason to drill more holes in Alaska looking for oil as to make solar panels more efficient.

Regardless of where the figure came from and why it was pushed on children, the point was definitely that one day this stuff is going to run out. And nowadays we don’t think that’s true. If we burn all the oil we know about, then either we’ll need carbon capture technologies we don’t have yet, or climate change will make life as we know it impossible. We won’t let that happen, will we? Call me a wild-eyed optimist, but I don’t think we will. The key constraint on how much oil we’ll use is not how much of it there is. It’s how much we can use without ruining the climate.

Now, you might think this would have big economic consequences for the oil industry, and so it will. But we’re not seeing all the consequences you might naively expect. People are still looking for more oil, even though we don’t need any more oil. And you might expect that we wouldn’t bother getting oil from hard-to-get-at places anymore. There’s no point extracting oil expensively from Canada when there’s stuff just under the surface in Kuwait that’ll be left in the ground for the sake of the climate. (And it’s much more expensive to extract oil from Canada than from Kuwait. Like, more than four times as expensive.) If the international oil industry was centrally planned, the plan would be to use up the stuff that’s easiest to get at and leave the stuff that’s hard to get at in the ground. We certainly wouldn’t be blowing our carbon budget on shale gas that can’t be extracted without causing earthquakes in Oklahoma. Of course the international oil industry isn’t centrally planned, but market forces are supposed to be even more efficient than central planning, so they should be able to do at least as well as a central plan would. But they’re not. I don’t get it.

The good news is that something along these lines may finally be starting to happen. Apparently it’s surprising that oil prices are low and Saudi Arabia hasn’t slowed down its production, and Ben Walsh in the Huffington Post thinks it might be because they’d rather sell it now for $30 a barrel than leave it in the ground and then find that in fifteen years everyone’s got their own solar panels. What I don’t really get is that the tone of the article is more “hey, maybe this is what’s happening”, rather than “finally, this obviously massively overdue thing is happening”. I can only conclude that it isn’t actually overdue, and my whole understanding of the situation is wrongheaded. If you do understand it, enlighten me in the comments!